Preliminary Considerations

  1. This is intended to be an ADDENDUM to a purchase contract with a seller in foreclosure, where your intention is to either short sale the deal, flip it or cure the loan and keep it. It should be signed contemporaneously with the signing of the purchase agreement and/or deed with the seller.
  1. Consult with a local attorney who is an expert in your state’s foreclosure laws. While these clauses are provided as a sample and a guideline, it is not a substitute for qualified legal counsel who may provide you with specific requirement of your state law.
  1. When it doubt, write it out. Don’t be afraid to put something in writing, and don’t be lazy about it – the more you put in writing, the less problems you have later on.
  1. Regardless of what you put in writing, make sure the seller really understands the deal. If you say one thing and make them sign another, you are asking for problems.
  1. Try to get the agreement in affidavit form, signed by a notary. Try to get witnesses to sign as well, and have the seller initial next to EACH paragraph.
  1. If the seller does not speak English, make sure you have the agreement translated paragraph by paragraph, and have the translator sign a statement that he translated the document into the native language of the seller. If possible, bring your own translator to make sure the meaning does not get lost in the translation.
  1. Be honest - deal straight up with people. Don’t say, “I’m here to save your home”, then do the bait and switch. Tell the seller you are in it to make a profit. If you can’t do anything with the property, give it back to the seller. In other words, if you take a deed and it doesn’t work out, offer the deed back to the seller.
  1. Check your state law on foreclosure rules. As of this printing (Nov 2005), California, Maryland, Missouri and Minnesota have some form of “rescission” or disclosure required when buying a house from a seller in foreclosure. Many other states are considering similar legislation.
  1. If you are a real estate broker, make sure you disclose that fact, even if you are acting as a principal or through a corporate entity. Review your practices with a local attorney familiar with regulations pertaining to licensed brokers and salespersons.

10. Some of the clauses stated herein are optional – remove if not necessary.

AFFIDAVIT OF UNDERSTANDING & ADDENDUM TO PURCHASE AGREEMENT DATED ______, 20___

THIS IS AN IMPORTANT LEGAL CONTRACT CONCERNING THE SALE OF YOUR HOME AND SHOULD BE READ CAREFULLY. CONTACT AN ATTORNEY BEFORE SIGNING.

STATE OF ______)

) ss:

COUNTY OF ______)

The undersigned, being duly sworn, deposes and says (initial before each paragraph):

______1.I am currently in default of my loan(s) and am unable to make up my back payments or continue making further payments. I have attempted several other avenues of action to remedy my financial situation, including:

______

______

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______2. I am deeding my property to ______, (“purchaser”) who will not assume or pay any present mortgage, deeds of trust, or other liens or encumbrances against the property. I understand that signing a deed is a relinquishment of all my rights, equity and/or interests in the property. I understand that I will remain primarily responsible for all payments due on such mortgages, deeds of trust, or other liens or encumbrances and for any deficiency judgment sought by the lender after or upon foreclosure. I understand that if the underlying liens (mortgages or deeds of trust) contain a “due on sale” clause, said lender(s) may accelerate the balance due on the loan.I specifically understands that this loan may (or may not, at purchaser’s option) be paid on a monthly basis by buyer, but will not be assumed or paid off completely at this time, and that this loan will remain in Seller's name and may continue to appear on my credit report, which may affect seller’s ability to obtain future credit advances from other lenders. No payment of any kind shall act as an assumption of any duties of payment on the loan.

______3. The Purchaser may to attempt to negotiate a short pay (a.k.a. “short sale”) with the owners of the liens on the property. I understand that purchaser will not be doing this on my behalf, but on his own accord in trying to make this deal work for the Purchaser. Purchaser has not made me any promises, guarantees or representations about his ability to complete this task. I understand fully and completely that if purchaser is not able to negotiate the short sale with the lender, the lenders may proceed with foreclosure.

I further understand that if the lender accepts a short sale, this may or may not relieve me of my personal responsibility for the loan and may affect my credit score. I also understand that any forbearance or forgiveness of debt by lien holders may result in a taxable gain and I should consult with a qualified tax advisor to discuss the implications of such a gain if I should receive a form 1099 from the lender.

______4. I understand that Purchaser makes no promises or obligations as to curing back payments or making additional payments on my loan. Even if Purchaser cures the back payments on my loan, I understand that this does not obligate purchaser to continue making payments. At Purchaser’s sole discretion, Purchaser may decide to stop making payments on my underlying notes and any time and transfer title back to me by quitclaim deed. In that event, I shall accept such deed in lieu of any obligation required by Purchaser to make any additional payments or obligations, express or implied, and such acceptance shall act as a complete waiver of any claims or liability against the Purchaser.

______5. I agree to vacate the property on or before 12:00 Noon on ______, 20___ and leave the premises in “broom clean” condition and free from all personal effects, furniture and debris. If I remain beyond that time or do not leave the property in broom clean condition and free from all personal effects, furniture and debris I will be liable for damages, including occupancy charges of $_____/day. I understand that such occupancy charges do not constitute a lease, rental agreement or tenancy agreement

______6. I agree to waive any rights I may have to any prepaid or escrowed property taxes, insurance, homeowner’s association dues, county property tax refunds or other amounts held by any party in escrow, including, but not limited to lenders, homeowner’s associations and insurance companies.

______7. I have had the opportunity to seek legal, tax and financial counsel as to the implications of this transaction. I understand that purchaser is not my agent, representative or real estate agent in this transaction and is not acting on my behalf. Purchaser has made no representations as to the value of the property or seller’s legal rights or options with regard to his property. I UNDERSTAND THAT THIS DOCUMENT DOES NOT DEFINE OR EXPLAIN MY RIGHTS OR OPTIONS, and I have had the opportunity to seek legal, financial, tax or other professional counsel to weigh my options, my rights and the legal consequences of this transaction.

OPTIONAL: Seller has until ______, 20___ to review this document with legal or other counsel of this choice. In the event that no written objections are received by purchaser on or before said date, seller waives his right to object to any provisions of this agreement.

______8. I understand that this agreement is a negotiated sale of my property, even though my existing loan(s) may not be paid off. I understand that this transaction is not a loan, a temporary arrangement, a partnership or anything other than a transfer of ownership by sale of the property to the purchaser, and that after the transaction is complete, I will have no ownership interest in the property, even though I may still have continuing liability for my loans. I understand that this transaction creates a “sale”, for state and federal income tax purposes and that I have had the opportunity to review theses tax implications with a qualified tax advisor.

______9. I understand purchaser may assign this Agreement to another party for a profit and that I may be closing the sale with someone other than purchaser. I also understand purchaser may close in the name of a nominee or related company, or may choose to resell the property to another party for a profit.

______10. Purchaser agrees to provide me with copies of documents signed I have signed within 5 business days of this agreement. I may request additional copies of said documents at any time by paying the cost of reproduction.

______11. I expressly warrant and represents that there are no other liens, claims, or problems with the property other than as represented by me. I warrant that all major mechanical systems in the property are in good and working order, the roof and basement (if any) are free from leaks and that there are no adverse conditions affecting the property value that may exist that have not been disclosed.

______12. I understand that I may have certain rights under the state or federal law, including, but not limited to bankruptcy, redemption or other equitable rights that may give me additional rights to equity or continued possession of the property, and that by transferring ownership I may be giving up such rights. This disclosure is not to be construed as a list of my rights or legal advice, but simply an acknowledgment that I have investigated my rights under the law.

______13. I understand by signing the Agreement, I have agreed to sell the Property to the Purchaser and am now bound by the terms and conditions described in this Agreement. I further understand that I cannot change my mind or cancel the contract at some later date, nor can I continue to market the Property to any other party, except as provided herein. In short, I understand that once I sign a deed to my property, I no longer own it or have any rights to possess it or make any claim to it, and I cannot change my mind later on.

OPTIONAL: RIGHT OF RESCISSION. I may rescind this agreement for any reason or before midnight _____, 20____ by delivering written notice to the purchaser in person or by facsimile to the following number ______. As part of any rescission, I agree to repay any money spent on my behalf by purchaser as a result of this agreement, and return any consideration given to me by the purchaser.

______14. I understand that I have no right or option to re-purchase or live in the property once ownership has been transferred to purchaser, and purchaser has made no representations, oral, in writing, express or by implication that I will have the opportunity to re-gain ownership of the property.

______15. I agree to sign a limited power of attorney to purchaser or his assigns to deal with any clerical, human, computer and/or mathematical errors that may occur in the processing of the documentation for the property or any future dealing with lender, lienholders or any other parties that may have an interest in the property. I declare that any and all documents signed by my attorney-in-fact shall be valid as if they had been initially, signed and delivered by me personally.

______16. The purchaser has agreed to give me $ ______on _____, 05, which is fair and adequate consideration for my rights in the property, even though this may be less than what I could expect to gain from either curing the loan and/or negotiating a workout or forbearance with my lender and/or refinancing the debt and/or placing the property for sale on the open marketplace either myself or through a real estate broker and that I am knowingly and willingly agreeing to accept this consideration knowing these options and other potential options are available to me. I have not been promised any other consideration or money other than as stated herein. I have not been promised anything other than what is described in this Agreement. There are no unresolved issues, no “side agreements”, and there are no other terms not disclosed in this Agreement.

______17. I understand that the Purchaser is not acting on my behalf as counselor, advisor, consultant or non-profit agency. I understand that purchaser may make a substantial profit from this transaction and that his primary motivation in engaging in this transaction is to make a profit from the rental or resale of the property.

______18. I understand Purchaser may choose to close this transaction without the use of a formal process, a title company or escrow company. Purchaser may choose to record the conveyance documents himself. I also understand that this transaction may not involve title insurance or any title guarantees normal associated with a transaction.

______19. English is my native language and I have the ability to read and understand this agreement.

______20. I am not under the influence of alcohol, drugs or any other ailment at this time that would affect my ability to read this document and make an intelligent decision as to the consequences of signing it.

ADDITIONAL DISCLOSURES & AGREEMENTS:

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I HAVE COMPLETELY READ THIS AGREEMENT BEFORE SIGNING IT AND I AGREE TO THE TERMS AND CONDITIONS CONTAINED HEREIN.

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SELLERSELLER

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WITNESS

SWORN TO AND SUBSCRIBED BEFORE ME THIS ______DAY OF ______, 200___.

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NOTARY PUBLIC

My commission expires______